A couple of weeks back I was lucky enough to host a very interesting debate on the future of the music industry. One of the conclusions of the debate shared by all participants was that the death of the historical business models of music was announced, the only issue was knowing when digital distribution was going to take over. Piracy and its impact on the willingness of music consumers to actually pay for music was much discussed, and while I may not be a great lover of the major recording companies, I'm forced to recognise that the developing reluctance to pay for music is a worrying trend for artistic creation, regardless of its impact on the majors.
Looking at the relative lack of success of the various endeavours to eradicate piracy, it's hard not to consider that the duplicity of ISPs on that matter has weighed in favour of piracy. P2P has been a huge driver in broadband adoption, and many ISPs - while staying short of advocating piracy in their adverts - have at least implicitly suggested that the core of the value proposal of broadband was unlimited free music and movies.
In mature markets, however, this strategy - which worked fine to boost acquisition - is now turning against them. Following years of price wars, the profitability of broadband and multiplay is now at the lowest point ever, while the voice cash-cow has been steadily dwindling. Furthermore, while there are still untapped segments of the market to address, new subs are no longer the main vector for growth.
For a few years now, ISPs have known that their profitability relied on their ability to market additional services to the customer and monetise them. Their focus has been on VoD, and we're now seeing a number of VoD offers appear on various markets. The uptake seems fairly slow, however, which could be explained by the relative poorness of the content offers, and the less than optimal ergonomy of the various catalogue browsing tools.
Still, there's a good chance that P2P is eating into that market. After all, if you have access to thousands of DivX movies through e-mule, why would you pay a couple of euros or dollars (at least) to view a movie in streaming format? It may very well be perceived by the customer as an inferior customer experience (viewing vs. owning) at an inifinitely superior price. If and when ISPs try pushing digital music through their access service, the perception gap is going to be a lot wider.
Where does fiber come into this? It's a simple economic equation. In most of the countries where residential FTTx is being deployed, and certainly here in France, studies have shown that broadband customers are not willing to migrate to fiber if the prices are significantly higher than the multiplay package they are currently paying for (in France, the market price for multiplay is 29.99 EUR/month). The costs of fiber, however, are very much higher than those of DSL. Customer connection alone is around an estimated $900 per connection, and that's not taking all the other acquisition costs into account. So how will ISPs and operators compensate? By selling additional services and contents. And they're all talking about HD TV and HD VoD!
I'm wondering if we're not going to see a significant shift in ISP positions towards P2P and piracy in the coming months and years. I suspect they might take a more active stance to fighting piracy since it now eats into their potential revenues.
I'm pretty certain that it's one of the main service related questions that most operators or ISPs considering residential FTTx. I can see several way this could go. I don't think ISPs would go down the route of banning P2P entirely, that'd be like suicide. They can however, cap P2P traffic at various levels in the network, and while they have never done it so far, they might consider doing it again. They could reintroduce usage rates for upload, but that's hugely unpopular with customers as well and as soon as one player goes down another route, the impact on acquisition of such a tariff plan is also suicidal.
One interesting way they could go is to make P2P usage a paying flat-fee option. I don't know how feasible that would be technically, but from a marketing point of view, it would make a lot of sense. From a legal and regulatory point of view though, it could open a big can of worms with right owners.
I'm curious to have other opinions on the subject and discuss how this could go, so feel free to comment!